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Strictly, inflation is too much money chasing too few goods/services. Hence money printing (with low interest rates facilitating credit expansion, and QE activi
by somewhereoutth 4y ago
Strictly, inflation is too much money chasing too few goods/services. Hence money printing (with low interest rates facilitating credit expansion, and QE activities) causes inflation, and the reverse will reduce it.
True that the rich will tend to save money thrown at them, but they also tend to sink it into assets (like property) hence the 'everything bubble'. As you point out, wealth taxes won't move the needle on the price of bread, but may help reduce the costs of housing.
- stephen_g 4y agoThat’a not ‘strictly’ what inflation is, it’s how the Austrian school defines it. But it’s much complex than that (monetary velocity etc.), so trying to model the economy using the quantity theory of money tends to not yield useful results.
- somewhereoutth 4y agoAgreed that velocity is an important component, but I hope we can also agree that dumping large amounts of money into the economy (ultra low rates and QE) will result in price rises. At the whole economy level, I'd suggest that supply and demand don't really cause inflation - at least, not the kind of disfunctional inflation that we should guard agains. For example, if the supply of bread is reduced, then necessarily people will eat less bread (and price signalling will ensure that it is the poor that eat less bread). So long as this does not trigger e.g. a wage price spiral or other pathological effect, then this is 'fine'.
- closeparen 4y agoAssets being overvalued is a different thing from inflation. It's true that the cost of housing is up, but that's also borne out in rents. It's true that most people are homeowners, but the quantity actually included in inflation statistics is "owner's equivalent rent." House prices acquiring a premium over and above rent on comparable properties is not inflation.